July 29, 2014, 17.00 JST

The VAT shock still lingered in June

The retail sales in Japan in June was disappointing. The year on year (YoY) growth marginally deteriorated from -0.4% YoY in May to -0.6% YoY in June. Department store sales continued to suffer a sizable negative YoY growth at -3.3%, and supermarket store sales growth rate turned to a negative figure in June at -0.1% after briefly enjoying an upturn to +0.5% YoY in May. Convenience stores seem to be the only winner among chained stores categories in Japan, enjoying an expansion of 4.9% YoY in June. For those who were hoping to see a smooth recovery path in retail sales after the VAT hike, the June result was a cause for a concern. 

On the other hand, the June results were not so overwhelmingly negative as to fuel a concern for a recession. After a seasonal adjustment, the level of retail sales in June did improve from May, although only marginally (+0.4% month on month).

 The bad weather in June could also be put forward to explain the weakness in the retail sales in June. Overall, the June result was negative, but not sufficiently bad enough to force Japanese policy makers to modify their current optimistic stance on the Japanese economy. 

If the retail sales manages to regain year on year positive in July and August, Japanese economy may be able to shrug off the concern that 2014 could be a repeat of 1997. Judging from the combination of an improving consumer confidence, rising stock market through June-July and ever-tightening labor market, it does seem the direction is on a bright side. 

For more details on Retail sales statistics, please click here.